May 15, 2006

 

US Wheat Outlook on Monday: Down 2-4 cents on profit-taking, weak metals

 

 

U.S. wheat futures were called to open down 2-4 cents Monday following weak overnight trade and on a setback from Friday's rally to contracts highs, brokers said.

 

Weakness in outside inflationary markets, including metals and energies, and strength in the U.S. dollar were also expected to weigh on U.S. wheat futures, they said.

 

Friday's wheat futures rally was prompted by the U.S. Department of Agriculture's forecast for a year-over-year drop in U.S. 2006 winter and all-wheat production and ending stocks and a year-over-year decline in 2006 global wheat production, traders noted.

 

"We should see profit-taking today after building in premium after the crop report," said Jason Roose, of US Commodities. "Crop ratings should be out at 3 p.m. today, and we're thinking there won't be much of a change in the overall ratings."

 

Last Monday, the USDA said that only 35% of the U.S. winter wheat crop was in good to excellent shape, a slight deterioration from the previous week following this year's drought and some late freeze damage in Kansas.

 

In the overnight e-CBOT session, most-active July wheat closed down 3 1/4 cents at US$3.98 1/4 after setting a contract high Friday on speculative buying and following gains in KCBT and MGE wheat futures.

 

"Bulls still have solid technical power, but now Friday's contract high of US$4.11 is strong overhead resistance for the bulls to overcome," a technical source said. "It would take a close below support at US$3.80 to provide the bears with fresh downside technical momentum."

 

First resistance for CBOT July wheat was seen at US$4.05 and then at US$4.11 - the contract high. First support lies at US$4.00 - Friday's low - and then at US$3.95.

 

Kansas City Board of Trade July wheat ended overnight down 1 3/4 cents at US$4.79 1/2 per bushel after setting a contract high Friday.

 

"Bulls still have the solid technical advantage," a technical source said. "Their next upside price objective is major psychological resistance at US$5.00. Look for higher volatility in the near term, which is typical for serious weather markets in grains. A close below support at US$4.50 would provide the bears with some fresh downside technical momentum. First resistance is seen at US$4.87 - Friday's contract high - and then at US$4.90."

 

First support for KCBT July wheat was seen at US$4.78 - Friday's low - and then at US$4.72 1/2 - the bottom of Friday's upside price gap.

 

The CFTC reported Friday that speculators in CBOT wheat futures and options combined for the week ended May 9 boosted their net long stance; they ended the week long 78,828 lots, up 9,669 contracts from the week before and short 66,801 contracts, down 787 lots from the previous week.

 

For KCBT wheat futures and options combined, speculators were long 53,527 lots, up 5,624 contracts, and short 4,188 contracts, up 161 lots from the previous week.

 

For MGE spring wheat futures and options combined, speculators also boosted their long holdings by 1,489 lots to 13,786 contracts and increased their short holdings by 80 lots to 561 contracts.

 

There were 46 deliveries posted Monday against expired CBOT May wheat futures with the last date available of May 12. A customer of USA Blue stopped 36 lots.

 

There were 586 redeliveries of KCBT wheat, with a customer of Man Financial posting 231 lots and a customer of Shay Grain posting 221 lots. The Term Commodities house account stopped 504 lots.

 

Cash U.S. hard red winter wheat basis bids were unchanged Monday; soft red winter wheat basis bids were steady to weak with a 4-cent loss in Cincinnati; and spring wheat basis bids were mostly weak, with an 8-cent loss in Portland and 5-cent losses in Minneapolis, Aberdeen and Billings, grain merchandisers said.